You may have big business ideas, the knowledge, and the business plan all in place for your current or potential small business. The only thing stopping you from realizing your business dreams is money, right? In today’s difficult lending environment, obtaining the necessary cash to fund your business is easier said than done. However, if you follow the necessary steps and prepare yourself ahead of time, obtaining a small business loan or equipment finance is a very real possibility.
Preparation is the Key
Banks will require you to provide documentation in order to show that you are worthy of financing. If your business does not have a long successful operating history, your personal credit history will be a major determining factor. If your credit history suggests that you cannot handle your personal finances, more than likely the banks will assume you will not be able to run your business properly either. Thus, you should have a good credit history in order to procure a small business loan. Make sure to print out a copy of your credit history and bring it with you when visiting the bank.
If you already operate a small business, you should also bring your business’s financial statements in order to show its current financial health. The bank will want to know the net operating income and revenues brought in by your business as well as its approximate value. Having detailed pro-forma forms with you will also show your level of seriousness, making your loan approval all the more likely. These forms help banks determine the projected future worth of your business.
Lastly, it is critical to have a detailed business plan to present to the bank. A detailed business plan should include pro-formas and detailed financial statements. Having a detailed business plan assures the bank that you have done the necessary due diligence and have a realistic grasp of the profitability of your business. A detailed business plan should include biographical information of yourself and your business partners, your marketing strategies, your market advantage, projected profits, and much more.
How to Choose a Bank for Your Small Business Loan
After you have a business plan and all of the documentation prepared, the next step is deciding which banks to target. It is recommended to first start with financial institutions that you already do business with. Since your current bank or credit union already has access to your financial information and history, they will be more likely to approve your small business loan application if you have demonstrated financial responsibility. The particular bank you have a mortgage with is always the best start. If they already approved you for a large mortgage amount, chances are they might approve you for a small business loan as well.
If you cannot or do not want a loan from your current financial relationships, search the newspaper or online for banks advertising financing offers. These banks are actively pursuing new loan business and may be easier to deal with. Credit unions are another terrific option. Credit unions are usually much smaller than large corporate banking institutions and have more flexible lending requirements. In many cases, you may be able to meet and plead your case with those in higher positions with the authority to approve your loan directly.
Alternative Financing Options
If you have followed the above procedures and have still been denied by multiple financial institutions, you may have to utilize creative financing sources. There are numerous hard money lenders available who specialize in providing funds for small businesses. Unfortunately, they often charge higher interest rates, but they are still a viable financing option, especially if your business idea or current business is promising.
Acquiring a small business loan is not as difficult as it might seem. The key merely lies in proper preparation. Although lenders have tightened their lending requirements, as long as you have a solid financial history and a detailed business plan with reasonable projected growth, the likelihood of securing a small business loan is quite high.